Suppose individual A received a much better education than individual B, and consequently earns twice as much per hour of labor.

a. If both individuals work 40 hours a week, who will have greater H∗? Why?

b. If both individuals work enough hours so as to earn exactly $50,000 per year, who will have greater H∗?Why?

c. Draw a set of axes labeled TW and TZ that resemble Figure 3.8. Draw a line labeled A that shows individual A’s time constraint during a given period (say, one month), and draw another time constraint for individual B. Explain why and how they differ due to choices in previous periods.

d. On this same set of axes, draw representative indifference curves for both individual A and individual B, including ones that lie tangent to their respective time constraints. Based on the way you drew your curves, does individual A earn less than twice as much or more than twice as much as individual B?

e. Explain briefly why your answer to Exercise 13 (a) may change if you found out that individual A had to spend ten times as many hours on homework during her schooling years as individual B did.

f. Explain why it is optimal for individual B to invest less in health when she is already less healthy than A.Why does she not invest more to “catch up”?

Transcribed Image Text:

TW D Uo → TZ